I can enter foreign income and foreign tax paid for interest, dividend and earned income but there is no way to enter foreign capital gains and foreign tax paid for them. This normally should appear on Form 1116 as foreign passive income along with the foreign tax. Since the Form 1116 cannot be accessed and the interview does not allow/ask foreign capital gains and taxes, there appear to be no way to enter this data.
All the answers in the community point to the foreign tax credit link that allows you to enter only interest and dividend income. There is a screen that asks you to enter LTCG but it doesn't seem to do anything.
Here is the procedure to obtain the foreign tax credit for foreign taxes paid on foreign capital gains.
It is assumed that the reporting of foreign capital gains for U.S. tax purposes has been completed and the next step is to obtain foreign tax credit for foreign taxes paid using form 1116.
Some preliminary work has to be completed. Download the “2019 Instructions for Form 1116” and “Pub 514”.
Open the f1116 instructions and go to page 9. Under the heading “Adjustments to foreign capital gains and losses,” you will be using either worksheet A or B or the worksheet in Pub 514. The instructions will guide you to determine which worksheet to use. Whatever worksheet is used, after completion, record the amount that is to be inserted into line 1a of f1116.
Next go to the foreign tax credit interview. Herein is a screen by screen presentation of a simplified scenario whereby the only income for foreign tax credit are foreign capital gains.
1. Foreign Tax Credit
Yes
2. Before We Begin
Yes
3. Foreign Taxes
Continue
4. Tell Us About Your Foreign Taxes
Continue
5. Foreign Taxes
Continue
6. Do You Want a Deduction or Credit?
Credit
7. Reporting Foreign Taxes Paid
Continue
8. No Other Income or Expenses
No
9. Completing Forms 1116
Continue
10. Foreign Tax Credit Worksheet
Continue
11. Choose the Income Type
Make the selection then Continue
12. Country Summary
Add a country.
13. Country Name
Select from the list
14. Other Gross Income-Country
In the description, enter “Fgn. Cap. Gains.”
Enter the amount from the worksheet.
15. Definitely Related Expenses
Enter any applicable amount.
16. Foreign Losses
If you had a net foreign loss from the worksheet, enter it here.
17. Foreign Taxes Paid
Enter the amount
18. Country Summary
Done
19. Any Foreign Source Qualified Dividends or Long Term Capital Gains?
Here, Long Term Cap. Gains refers only to capital gain distributions
from a 1099-DIv. Leave it blank.
Continue thru the remaining screens until finished.
Here is the procedure to obtain the foreign tax credit for foreign taxes paid on foreign capital gains.
It is assumed that the reporting of foreign capital gains for U.S. tax purposes has been completed and the next step is to obtain foreign tax credit for foreign taxes paid using form 1116.
Some preliminary work has to be completed. Download the “2019 Instructions for Form 1116” and “Pub 514”.
Open the f1116 instructions and go to page 9. Under the heading “Adjustments to foreign capital gains and losses,” you will be using either worksheet A or B or the worksheet in Pub 514. The instructions will guide you to determine which worksheet to use. Whatever worksheet is used, after completion, record the amount that is to be inserted into line 1a of f1116.
Next go to the foreign tax credit interview. Herein is a screen by screen presentation of a simplified scenario whereby the only income for foreign tax credit are foreign capital gains.
1. Foreign Tax Credit
Yes
2. Before We Begin
Yes
3. Foreign Taxes
Continue
4. Tell Us About Your Foreign Taxes
Continue
5. Foreign Taxes
Continue
6. Do You Want a Deduction or Credit?
Credit
7. Reporting Foreign Taxes Paid
Continue
8. No Other Income or Expenses
No
9. Completing Forms 1116
Continue
10. Foreign Tax Credit Worksheet
Continue
11. Choose the Income Type
Make the selection then Continue
12. Country Summary
Add a country.
13. Country Name
Select from the list
14. Other Gross Income-Country
In the description, enter “Fgn. Cap. Gains.”
Enter the amount from the worksheet.
15. Definitely Related Expenses
Enter any applicable amount.
16. Foreign Losses
If you had a net foreign loss from the worksheet, enter it here.
17. Foreign Taxes Paid
Enter the amount
18. Country Summary
Done
19. Any Foreign Source Qualified Dividends or Long Term Capital Gains?
Here, Long Term Cap. Gains refers only to capital gain distributions
from a 1099-DIv. Leave it blank.
Continue thru the remaining screens until finished.
Thanks buddy. I was able to enter the foreign capital gain using the steps you described.
However, entering foreign income and foreign taxes paid in Turbotax 2019 online is tortuous to say the least. You have to enter dummy foreign tax paid say, $0.01, if you have not paid foreign tax but want to record the foreign income. This is bizarre. Again, the capital gain figure entered in Step 14 is clubbed with all other passive income. A preferred way would be to show it separately in Form 1116. In fact the CPA firm that I used mentioned each major income under passive income separately on Form 1116. That's the right way.
I would again repeat that Turbo Tax online falls way short of expectation in handling foreign income and taxes.
I have a similar question on taxes for foreign capital gains. In my case, the foreign mutual fund sale has a tax withholding. I can enter that on Turbo Tax screen where the sale of the mutual fund is recorded. I assume that Turbo Tax will handle it and it will factor in to form 1116. I will try it when I file for 2020. The issue is that withholding information for 2019 was not available when I filed 2019 taxes. Once it was available I had to file taxes in the foreign country and since I did not have earned income, I got some of the withholding back as refund in 2020. I see this cycle repeating every year.
Assuming that Turbo Tax handles the withholding in year X and I get a foreign tax refund in year X+1, how to account for it in my tax filing. Can I show the tax refund as Other income in year X+1?
Appreciate on any guidance on this topic.
Foreign capital gain is entered the same way as domestic capital gain.
If you have any foreign dividends, enter them as if you have received form 1099-DIV. (the same applies to any foreign interest... enter it as if you have form 1099-INT... with foreign tax paid entered in their respective boxes).
Renee,
My question has more complications. I have Foreign taxes withheld by the Foreign Mutual fund. I don't know where to enter these. Then when I file a foreign tax return in that country, because of different Financial years and dates, I get a tax refund for a part of the taxes withheld the following year. I do not know how to handle these complications. The box that you are referring is talking about Federal Taxes withheld, not foreign taxes withheld. Wouldn't that create an issue as there this tax was not with held by the IRS but a foreign tax authority?
Also where do I indicate that I have not received a 1099-B?
Thanks for your help. This issue has been bugging me quite a bit.
You enter the foreign taxes in box 6 of form 1099-Int (Foreign tax paid). You would net the foreign tax paid and the refund you received during the tax year to determine the amount to enter.
TurboTax will ask you if you received a form 1099-B when you start the investment sales routine.
Thomas, thanks for answering. My question was about entering foreign taxes withheld on Foreign Capital Gains.
There is no provision for assigning foreign taxes on 1099 B questionnaire, but as you pointed out there is for 1099-Int and 1099-Div. Are you suggesting I create a Dummy entry on 1099-Int and enter the Net foreign tax paid (current withholding-any refund from last year) and account for it this way?
Will it go to proper place in form 1116 if I do this. Note the dummy entry will not have an interest specified. Wouldn't that look like an anomaly to the software or IRS?
Thanks for clarifying.
You need to record the sale of investments separate from the foreign taxes paid. You report the investment sales in the Investment Income section of TurboTax, under the Income and Expenses menu tab, and then Stocks, Mutual Funds, Bonds and Other.
To get a credit for the foreign taxes paid, you go to the Deductions and Credits section of TurboTax, then Estimates and Other Taxes Paid, then Foreign Taxes.
Indicate that you want to apply for the Foreign Tax Credit and work through that section. You can net your foreign taxes paid with the refund you received from the previous year to arrive at the amount to enter.
Thomas,
My Fed tax return was rejected twice with some error relating to for 1116. The situation is that the INT part is small as is the foreign tax withheld for it. But the foreign Capital gains and tax withheld for them is substantial. I entered the capital gains transactions in the Income and Expenses menu tab as stated and it calculates the correct Capital gains.
Went through the interview. For the INT it already considers it so I stated the Capital Gains income as the next source and when asked provided the foreign tax withheld. In the forms mode it shows the tax for INT from 1099B as well as the Tax withheld for capital gains. All seems fine. Yet the eFile is giving an error. Any help?
It seems there may be an issue with 2020 Turbo tax. I saw in the reviews at least 2 other users complain that eFile is failing with Form1116.
Renee,
Not entering but transferring data to Form 1116 is the problem
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Entering foreign capital gains is not an issue. It's done the same way as the domestic CG. The issue is transferring foreign CG data to Form 1116. There is no way to define a CG as a foreign CG income and the foreign tax paid for that CG. And therefore, the foreign CG amount and the foreign tax paid data are not transferred and reflected in Form 1116. There is a tortuous way of doing it where you have to add all foreign CG data and enter it as a single number. The steps are given in couple of mails in within this thread.
Thanks
You are right there is no way to transfer the foreign CG data. I did follow the steps outlined by Rogge above. And the Form1116 showed me the correct number (sum of Foreign taxes withheld on 1099B, 1099INT, my capital gains tax and expenses related to income).
I did not use the Foreign Capital gains using the worksheet. I used the actual net foreign capital gains I paid less any refunded in 2020. I think the current rejection may be due to something between Turbotax and IRS.
I will now try to also fill the worksheet outside of Turbotax and see what it comes up with.
regards
I'm just about ready to manually complete my 1040 for 2020 and forego Turbotax. Can't get the foreign tax paid on ordinary dividends to work. I had a hard time in 2019 but I finally was able to take the credit. It appeared on Schedule 3 last year, line 13B. I can't get it to work in 2020 but then the IRS has bigger fish to fry thanks to Congress not doing their job.
You will need to enter 1099-DIV first. Then enter information under Foreign Tax Credit section.
In TurboTax online,
To file foreign tax credit on Form 1116, follow steps here:
If you have paid taxes on foreign dividends to both foreign and the US tax authorities, the IRS allows you to claim a foreign tax credit on a Form 1116 along with your US tax return. The amount will show on Schedule 3 line 1 and line 20 on Form 1040.
@rckprt13
In the Foreign Taxes section it allows you to take credit for foreign taxes paid for interests and dividends but not for capital gains. Any help for capital gains is highly appreciated.
Please follow these steps:
Make sure you have entered the capital gain transactions somewhere in the program ( for example 1099-B section) to show you are paying taxes on your Form 1040.
You will then enter info under Foreign Tax Credit section here:
In TurboTax online,
IRS allows you to claim a foreign tax credit if you pay taxes to both foreign and US government including capital gain. This amount will show on line 1 on Schedule 3 and line 20 of Form 1040.
1. After question 7 Reporting Foreign Taxes Paid when we continue
it asks - First Year You are Eligible? should I say yes if this is the first time I am eligible for probable foreign tax credit? and on next page should I select - elect the simplified method?
2. On foreign tax credit section it asks - Other Deductions Not Definitely Related ..can you give some examples of not definitely related deduction when you earn capital gains and/or interest from India?
3. also - it ask for Reduction in Foreign Taxes - in what situations we can claim reduction in taxes?
4. Finally when I am about to finish foreign tax credit questionnaire - it shows I have Excess Foreign Tax Credit but it does show how many $ of excess credit I have ...I believe it is because I have entered income as other income and not on 1099 ..so how do I fix this issue?